peterbirks: (Default)
I see that Anshul Rustagi, superstar of complex derivatives at Deutsche Bank, has been sacked for overstating his position by a mere £30m. As DB will doubtless say, this is not very much in the grand scheme of things when it comes to DB's derivatives book, so perhaps Mr Rustagi should appeal, claiming that the amount was "trivial".

Much though I would love to use this as evidence of some kind of portent of doom in the credit derivatives market, I won't, because it just wouldn't be true. All that this incident showed was that these guys are dealing in areas so complex that the risk managers aren't brainy enough to keep up with them (since once reason that they are risk managers is that they are not fast and sharp enough to be traders).

Could Rustagi have carried on for longer and "done a Leeson"? I doubt it. Unlike Barings, DB is not run by total tossers who preferred to believe mythical profits rather than hard numbers like cash flow.

But we can see how it all developed. Young stud in big gambling game (non zero-sum) wins money, thinks he's good, plays bigger, gets unlucky, is too embarrassed to reveal that even he can occasionally make a big loss, conceals loss, chases loss, loses again, and so on. Gets discovered, and yet another blow-up. Taleb chuckles into his soup.

more observations )

August 2017

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